What is a Balance Sheet?
The balance sheet is a statement that highlights the financial position of a company at a given date or time. Mostly balance sheet is prepared on a yearly basis, but the preparation of the balance sheet solely depends on the policies set for the company.
How to prepare a Balance Sheet?
Here we will discuss how to prepare a Balance Sheet:
1. Understand the basic accounting equation
Always, the capital in the business will be equivalent to the assets and the liabilities. Set all the assets of a company, group liabilities and understand the amount of capital set for the time. Divide balance sheet document into two sides the debt and the credit side which will be after you writing your balance sheet heading. Write it this way
As at 30 Dec 2017
2. List All Assets –Both Fixed and Current
Fixed assets are the resources that are expected to last in a business for a period of more than one year. They include land buildings, furniture, machine, and inventory. While current assets are those resources that are expected to last for a period of less than one year. Most current assets are used in the daily running of the business and they include the cash in hand, cash in bank etc. After differentiating between the two, create T table and on the debit side-left hand side of your T table – record the fixed assets first with their totals. Proceed still on the same side and record the current assets still with their totals for the same. Sum the value of all the current asset plus the fix assets to have the total sum of your Assets. However you much choose not to arrange the list basing of what forms the fixed or the current assets but arrange the whole assets. Still will be okay.
3. Capital plus Liabilities section
On the left-hand side of your T table –referred to as the debit side start recording the value of your capital-remember capital is a special liability and that’s why it appears on the credit side. For the liabilities, you will have to differentiate between short-term liabilities and the long-term liabilities. Short-term liabilities are those liabilities in a business expected to last for a period of less than one year. While long-term liabilities are types of liabilities in a business that lasts for a period of more than a year. Some of the long-term liabilities include the long-term notes and mortgages, bonds payable, the pension plan obligation etc. For the short term, liabilities include the accounts payable, short-term notes payable and the accrued liabilities. Add the figure for the capital and the total liabilities of the company.
4. Comparing the Values
If you have completely tallied all the figures correctly, then the value for your total assets should be equal to the total liabilities. Both the debit side value should be equal to the credit side value. If it doesn’t, then there are certain errors that you made along the process.
If you’re based around Maryland or Washington, you can contact us to get your balance sheet prepared.